Freight Factoring is a type of business transaction where a business sells its accounts receivables (invoices) to a third party who is called a factor at a discount. There are two types of factoring, recourse factoring, and non recourse factoring. Under recourse factoring, the factor carries the risk of default if your customers go bankrupt. On the other hand, under non recourse factoring, the factor agrees to bear the losses that might occur if one of your clients becomes insolvent or is unable to pay your invoices.
Freight factoring has several benefits to any business, especially in the transportation industry. Here are the top benefits of non-recourse factoring for trucking business.
Improving Cashflow Position
By financing slow invoices, factoring avails ready cash to a business so that it can be able to settle its expenses in time. At the same time, a business can be able to invest in growth.
Protection Against Invoice Non-payment
In the freight industry, the risk of bad debts is present. However, with non recourse factoring, you can be able to mitigate against the risk of payments default by your clients. This is especially vital for small to medium sized trucking companies that might not be having enough cash reserves.
Fast Deployment and Simple Application
In most cases, getting a factoring agreement is quite simple, despite the size of your freighting company. On the other hand, being funded takes minimum time, unless your situation is complicated.
of Short Term Funding
From time to time, your freighting business may require emergency funding to undertake big projects or to expand. Funds raised through factoring can be used to serve your urgent financing needs.
Factoring, either recourse or non recourse offers various benefits to a business organization. The most important factoring benefit is improving a businesses’ cash flow position. Besides, non-recourse factoring protects your business against the risk of default by some of your clients.